How will Health Savings Accounts Help my High Deductible Health Plan?

Open enrollment is an opportunity for employers to educate employees about their benefits, including a High Deductible Health Plan (HDHP) and Health Savings Accounts (HSA).

Selecting a HDHP with a paired HSA has a tremendous impact on a family’s financial well-being; it can prove to be extremely beneficial if the HSA is used and funded correctly, and communicated with employees at Open Enrollment.

A HDHP is a type of Medical plan that typically offers lower premiums than more traditional plans like PPO’s and HMO’s in exchange for a higher deductible (amount the employee pays).  They are usually paired with a health savings account that allows you and/or your employee to make tax deductible contributions.  A Medical deductible is the amount members pay out-of-pocket before the Medical insurance kicks in and starts paying a portion of your medical claims.   The deductible is an annual amount that usually resets at the beginning of the calendar or plan year.  Once you have hit your annual deductible, then your insurance kicks in and starts to pay a portion of the cost.  The HDHP may pay 80%, 90% of even 100% of your health care cost once the deductible is met, however this will vary based on individual plan.

An HSA should be thought of as a savings plan for health care you’ll need today, tomorrow and into the future.  It’s an individually owned bank account that you do not pay federal income tax on the money you contribute.   It can not only be used to pay for your out-of-pocket medical cost before the deductible is met on your HDHP, but can also be used for any qualified medical expense, including those not covered by health insurance such as Dental and Vision care.  The funds can also be used for qualified medical expenses for a spouse and or dependents.  Employee contributions into this account are tax deductible or pre-tax if made by salary reduction through payroll and unlike a Flexible Spending Account amounts (FSA), your savings grow from year to year. There’s no “use it or lose it” rule, the money is yours to keep and roll over from year to year. The account also accrues interest on a tax-free basis which will build your savings into a nest egg for retirement.

To see how much you could save with an HSA, check out this HSA savings calculator.

Open Enrollment is your opportunity to educate employees on how an HSA can not only help them cover their medical deductible and out-of-pocket expenses but also help their long-term financial planning.   Engaging them in conversations and examples so they have a clear understanding on how they work will allow them to make an educated decision on their health care and financial needs not only for themselves but also their family.